GCC bank sector shores-up more profits in first half 2012

The GCC banking sector continued to grow rapidly in the first half of 2012, according to QNB Group analysis.

The GCC banking sector continued to grow rapidly in the first half of 2012, according to QNB Group analysis.

The collective assets of the largest 50 banks in the region increased by 7.7 per cent in the year to 30 June 2012, reaching $1.28 trillion. Profits were also up by 5.4 per cent, compared to the first half of 2011, reaching $12 billion. While 76 per cent of banks in the group were profitable, with average profit growth of 13 per cent, only 11 out of 50 saw a decline and only one bank in the group recorded a net loss

GCC banks have benefited from the buoyant regional economy, supported by high oil prices and high levels of government spending. They have also avoided exposure to many of the problematic financial instruments, such as peripheral Eurozone debt and mortgage-backed securities, that have been weighing heavily on banks' performance in Europe and the US.

The banking sector is skewed towards the very largest banks, with the top 10 representing 50 per cent of total assets. Saudi and Emirati banks make up the bulk of the top 50, in terms of both number--12 and 14 respectively--and aggregate assets, 33 per cent and 28 per cent respectively. Qatar is in third place, and eight of its banks are included in the group, representing 13.5 per cent of total assets. Fifteen of the top 50 banks are Islamic and represent 19.5 per cent of total assets.

The strongest growth in assets was achieved in Qatar and Oman, by 20.1 per cent and 19 per cent respectively. The assets growth in Qatar was driven by QNB, which is the largest bank by assets in the GCC and achieved 25.5 per cent growth in the year to 30 June 2012. The other 7 banks also averaged a strong growth rate of 14.7 per cent, led by Qatar Islamic Bank and Masraf Al Rayan. Qatar's nominal GDP grew at an annualised rate of 17 per cent in the first quarter of the year, and booming economic activity usually contributes to strong bank asset growth.

Only two Omani banks are included in the top 50, and both saw strong asset growth--23.3 per cent for National Bank of Oman and 17.6 per cent for Bank Muscat.

Regional assets growth was driven by an expansion in loan portfolios, which grew by 13.6 per cent during the first half of the year. Growth was particularly strong in Qatar, where loans surged by 39.7 per cent, largely due to a 55.9 per cent increase at QNB, which was the most rapid for any bank in the region. QNB has the largest loan book in the region.

When measured by profit growth, the Omani banks come out on top, with 19 per cent, followed by Saudi banks which achieved aggregate growth of 17.1 per cent.

National Commercial Bank in Saudi Arabia saw the strongest growth among the ten largest banks with profits up 20 per cent. QNB was in second place in terms of growth, with 17.1 per cent, but achieved the highest level of profits, at $1.13 billion. Al Rajhi of Saudi Arabia and National Bank of Abu Dhabi also achieved double-digit growth, while the other top ten banks grew more slowly or saw a fall in profits, due to a high level of provisions.

Islamic banks saw their profits surge by 18.5 per cent, on the back of growing customer demand for Shari’ah finance across the region. Four of the top five banks in terms of profit growth were Islamic.

Capital adequacy ratios (CARs) are generally high in the region and, with a few exceptions, non-performing loans (NPLs) are low. This substantiates the impression of health in the sector.

Details of mid-year NPLs and CARs are not available for all of the 50 banks. However, QNB's estimate, based on the data that is available and earlier indicators for the other banks, is that the aggregate level of NPLs in the region is 4.8 per cent of total loans. There is considerable variability in NPLs between countries, ranging from a low of one per cent in Qatar to a high of eight per cent in the UAE. The UAE figure reflects the impact of recent regulatory changes in accounting for NPLs and exposure to the real estate sector, with Dubai-based banks being more impacted than banks in Abu Dhabi.

Overall, the net impairment charge on the loan portfolio of the largest ten banks has stabilised, according to data for June 2012, compared to the same period last year, despite two of the largest ten banks taking much increased provisions. This, along with much improving growth in operating income, would allow increased profitability going forward.

Overall, the GCC banking sector appears to be in good shape, according to QNB Group. High oil prices, rising consumer spending and major infrastructure projects should all contribute to continuing strong growth in the coming year.